Over the past three months, National Grid Inc. NGG increased by 30.83%. To understand a company’s price action over a period of about 3 months, it can be helpful to look at its financials. An important aspect of a company’s finances is its debt, but before we understand the meaning of debt, let’s look at what National Grid’s debt is.

National grid debt

Based on National Grid’s financial statements as of June 25, 2020, long-term debt is $33.28 billion and current debt is $5.07 billion for total debt of $38.35 billion . Adjusted for $90.91 million in cash equivalents, the company’s net debt is $38.26 billion.

Let’s define some of the terms we used in the paragraph above. Current Debt is that portion of a company’s debt that falls due within one year, during Long-term liabilities is the portion due in more than 1 year. cash equivalents includes cash and all liquid securities with maturities of 90 days or less. total debt equals current liabilities plus non-current liabilities minus cash equivalents.

To understand a company’s level of financial leverage, investors look at the leverage ratio. Considering National Grid’s total assets of $83.55 billion, the debt ratio is 0.46. As a rule of thumb, a debt ratio greater than 1 indicates that a significant portion of the debt is funded by assets. A higher leverage ratio can also mean that the company faces default risk if interest rates rise. However, leverage ratios vary widely across different industries. For example, a debt ratio of 25% may be higher for one industry but normal for another.

Why do investors look at debt?

Debt is an important factor in a company’s capital structure and can contribute to growth. Debt typically has a relatively lower funding cost than equity, making it an attractive option for executives.

Interest payment obligations may affect the company’s cash flow. Financial leverage also allows companies to raise additional capital for…